For the first quarter of fiscal 2013, F5 Networks, Inc. (NASDAQ:FFIV)
announced revenue of $365.5 million, up 1 percent from $362.6 million in
the prior quarter and 13 percent from $322.4 million in the first
quarter of fiscal 2012.

GAAP net income was $69.5 million ($0.88 per diluted share), compared to
$67.7 million ($0.85 per diluted share) in the prior quarter and $66.5
million ($0.83 per diluted share) in the first quarter a year ago.

Excluding the impact of stock-based compensation and amortization of
purchased intangible assets, non-GAAP net income was $90.6 million
($1.14 per diluted share), compared to $88.7 million ($1.12 per diluted
share) in the prior quarter and $82.2 million ($1.03 per diluted share)
in the first quarter of last year.

A reconciliation of GAAP net income to non-GAAP net income is included
on the attached Consolidated Statements of Operations.

“During the first quarter, strong sales to North American enterprises
and service providers were offset by a substantial slowdown in U.S.
Federal sales,” said John McAdam, F5 president and chief executive
officer. “Japan sales were also weak during the quarter, in contrast to
continuing strength in Europe and solid year-over-year growth in the
rest of the Asia-Pacific region.

“A key driver of product revenue in the quarter was strong demand for
BIG-IP 4200v, the first in our series of new ADC appliances, which we
introduced in mid-October. Recently, we began shipping our new
entry-level appliances, the 2000 series, which will be announced during
the next few weeks along with our new high-end appliance, BIG-IP 10200,
and our 8-blade VIPRION 4800 chassis.

“During the quarter, sales of our software modules and virtual edition
(VE) products continued to gain traction. Very shortly, we will be
announcing general availability of our Advanced Firewall Manager (AFM),
as well as enhanced versions of Application Security Manager (ASM) and
Access Policy Manager (APM), key components of our Application Delivery
Firewall solution. In addition we will be launching new high-performance
versions of all our BIG-IP VE products.

“As these and other new products enter the market over the next two
quarters, we believe they will have a positive impact on our product
revenue and continue to expand our addressable market,” McAdam said.

F5 added 95 employees during the quarter and achieved a non-GAAP
operating margin of 37.4 percent. The company also continued to
strengthen its financial position, generating $145 million in cash from
operations. After repurchasing 555,243 shares of outstanding common
stock the company ended the quarter with $1.29 billion in cash and
investments.

For the current quarter, ending March 31, management has set a revenue
goal of $370 million to $380 million with a GAAP earnings target of
$0.93 to $0.96 per diluted share and a non-GAAP earnings target of $1.21
to $1.24 per diluted share.

A reconciliation of the company’s expected GAAP and non-GAAP earnings is
provided in the following table:

F5 Networks (NASDAQ:FFIV) makes the connected world run better. F5 helps
organizations meet the demands and embrace the opportunities that come
with the relentless growth of voice, data, and video traffic, mobile
workers, and applications—in the data center, the network, and the
cloud. The world’s largest businesses, service providers, government
entities, and consumer brands rely on F5’s Intelligent Services Platform
to deliver and protect their applications and services while ensuring
people stay connected. Learn more at www.f5.com.

Statements in this press release concerning the continuing strength of
F5’s business, sequential growth, the target revenue and earnings range,
share amount and share price assumptions, demand for application
delivery networking and storage virtualization products and other
statements that are not historical facts are forward-looking statements.
Such forward-looking statements involve risks and uncertainties, as well
as assumptions and other factors that, if they do not fully materialize
or prove correct, could cause the actual results, performance or
achievements of the company, or industry results, to be materially
different from any future results, performance or achievements expressed
or implied by such forward-looking statements. Such factors include, but
are not limited to: customer acceptance of our new traffic management,
security, application delivery, WAN optimization and storage
virtualization offerings; the timely development, introduction and
acceptance of additional new products and features by F5 or its
competitors; competitive pricing pressures; increased sales discounts;
uncertain global economic conditions which may result in reduced
customer demand for our products and services and changes in customer
payment patterns; F5’s ability to sustain, develop and effectively
utilize distribution relationships; F5’s ability to attract, train and
retain qualified product development, marketing, sales, professional
services and customer support personnel; F5’s ability to expand in
international markets; the unpredictability of F5’s sales cycle; the
share repurchase program; future prices of F5’s common stock; and other
risks and uncertainties described more fully in our documents filed with
or furnished to the Securities and Exchange Commission. All
forward-looking statements in this press release are based on
information available as of the date hereof and qualified in their
entirety by this cautionary statement. F5 assumes no obligation to
revise or update these forward-looking statements.

GAAP to non-GAAP Reconciliation

F5’s management evaluates and makes operating decisions using various
operating measures. These measures are generally based on the revenues
of its products, services operations and certain costs of those
operations, such as cost of revenues, research and development, sales
and marketing and general and administrative expenses. One such measure
is net income excluding stock-based compensation, amortization of
purchased intangible assets and acquisition-related charges, net of
taxes, which is a non-GAAP financial measure under Section 101 of
Regulation G under the Securities Exchange Act of 1934, as amended. This
measure consists of GAAP net income excluding, as applicable,
stock-based compensation, amortization of purchased intangible assets
and acquisition-related charges. This measure of non-GAAP net income is
adjusted by the amount of additional taxes or tax benefit that the
company would accrue if it used non-GAAP results instead of GAAP results
to calculate the company’s tax liability. Stock-based compensation is a
non-cash expense that F5 has accounted for since July 1, 2005 in
accordance with the fair value recognition provisions of Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic 718 Compensation—Stock Compensation (“FASB ASC Topic
718”). Amortization of intangible assets is a non-cash expense.
Investors should note that the use of intangible assets contribute to
revenues earned during the periods presented and will contribute to
revenues in future periods. Acquisition-related expenses consist of
professional services fees incurred in connection with acquisitions.

Management believes that non-GAAP net income per share provides useful
supplemental information to management and investors regarding the
performance of the company’s core business operations and facilitates
comparisons to the company’s historical operating results. Although F5’s
management finds this non-GAAP measure to be useful in evaluating the
performance of the core business, management’s reliance on this measure
is limited because items excluded from such measures could have a
material effect on F5’s earnings and earnings per share calculated in
accordance with GAAP. Therefore, F5’s management will use its non-GAAP
earnings and earnings per share measures, in conjunction with GAAP
earnings and earnings per share measures, to address these limitations
when evaluating the performance of the company’s core business.
Investors should consider these non-GAAP measures in addition to, and
not as a substitute for, financial performance measures in accordance
with GAAP.

F5 believes that presenting its non-GAAP measure of earnings and
earnings per share provides investors with an additional tool for
evaluating the performance of the company’s core business and which
management uses in its own evaluation of the company’s performance.
Investors are encouraged to look at GAAP results as the best measure of
financial performance. However, while the GAAP results are more
complete, the company provides investors this supplemental measure
since, with reconciliation to GAAP, it may provide additional insight
into the company’s operational performance and financial results.

For reconciliation of this non-GAAP financial measure to the most
directly comparable GAAP financial measure, please see the section in
our Condensed Consolidated Statement of Operations entitled “GAAP to
Non-GAAP Reconciliation.”

(4) Beginning with the second quarter of fiscal 2012, the company
will exclude amortization of purchased intangible assets and
acquisition-related charges in addition to stock-based
compensation expense as a non-GAAP financial measure

F5 Networks, Inc.

Consolidated Statements of Cash Flows

(unaudited, in thousands)

Three months ended

December 31,

2012

2011

Operating activities

Net income

$

69,493

$

66,492

Adjustments to reconcile net income to net cash provided by
operating activities:

Realized loss on disposition of assets and investments

26

579

Stock-based compensation

26,710

22,123

Provisions for doubtful accounts and sales returns

349

415

Depreciation and amortization

9,934

5,822

Deferred income taxes

(1,265

)

(598

)

Changes in operating assets and liabilities:

Accounts receivable

(24,256

)

(22,601

)

Inventories

(1,313

)

(344

)

Other current assets

(4,979

)

(3,879

)

Other assets

428

562

Accounts payable and accrued liabilities

36,411

26,576

Deferred revenue

33,268

36,732

Net cash provided by operating activities

144,806

131,879

Investing activities

Purchases of investments

(313,114

)

(262,499

)

Maturities of investments

165,193

199,102

Sales of investments

23,020

1,886

Increase in restricted cash

(728

)

(3

)

Purchases of property and equipment

(7,788

)

(5,857

)

Net cash used in investing activities

(133,417

)

(67,371

)

Financing activities

Excess tax benefit from stock-based compensation

503

1,399

Proceeds from the exercise of stock options and purchases of stock
under employee stock purchase plan

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